National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

bankruptcy

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FTC Cracking Down on Dishonest Payday Lenders

The FTC has been going after fraudulent payday lending operations centered in Missouri and Kansas, with settlements as high as $1.266 billion.

In a press release dated January 9, 2017, the FTC announced charges against businessman, Joel Jerome Tucker, and his companies, SQ Capital LLC, JT Holding Inc., and HPD LLC, for selling portfolios made up of fake payday loans. According to the FTC, the loans listed in the portfolios were named phony lenders and debtors, including their social security and bank account numbers, and led to collection activities against consumers who had not taken out loans. The FTC previously brought actions against two debt collectors who used the fake portfolios.

In October 2016, the Kansas City Star reported that Joel Tucker’s brother, Missouri businessman and sometime racecar driver, Scott Tucker, was ordered to pay $1.266 billion to the FTC after Nevada federal judge, Gloria Navarro, determined that he and others ran a payday loan enterprise that engaged in deceit against its customers by failing to disclose terms and conditions of the loans and for charging usurious interest rates. Judge Navarro called the fraud “sustained and continuous.” Mr. Tucker attempted to evade state lending regulations by locating portions of his businesses on tribal lands, though the bulk of his operations were located in Overland Park, Kansas. Scott Tucker also has a pending criminal case against him in which he is accused of running a $2 billion payday loan enterprise that defrauded 4.5 million consumers. That case is scheduled for trial in April 2017.

In another case, a settlement was reached last summer between the FTC and payday lenders, Tim Coppinger and Ted Rowland, and their companies. Under the terms of that agreement the lenders paid almost $1 million with the threat of substantially greater judgments (up to $32 million) should they fail to honor the terms of the settlement agreement. The fraudulent activity included debiting money from the accounts of people who never requested loans but for whom the payday lender had obtained personal information. They would then charge interest and fees on those unauthorized loans. Joel Tucker had a hand in this operation through his company, eData Solutions, a “one-stop-shop” for assisting payday lenders in their start-ups and operations. eData’s involvement consisted of providing “customer/borrower leads, qualifying the leads, providing a loan management software system, and buying defaulted consumer loans to sell to third-party collectors.” Court-appointed Receiver, Larry Cook, is seeking to recover the entire $29.9 million that Coppinger and Rowland’s companies paid to eData Solutions for its services.

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Battle Lines Have Been Drawn – Midland v. Johnson

In a flurry of party and amici briefs, the issue of whether a proof of claim for a stale debt gives rise to an FDCPA claim has been briefed before the Supreme Court. Midland Funding v. Johnson, No. 16-348 (petition filed Sept. 16, 2016). The case is on appeal from the Eleventh Circuit decision that the “Bankruptcy Code does not preclude an FDCPA claim in the context of a Chapter 13 bankruptcy when a debt collector files a proof of claim it knows to be time-barred.” Johnson v. Midland Funding, LLC, C.A. No. 15-11240, 2016 U.S. App. LEXIS 9478 (11th Cir. May 24, 2016). The issue is currently pending in courts around the country including the First, Third, Sixth, Seventh and Eighth Circuits. Oral argument is scheduled for January 17.

Johnson ACA Intl amicus
Johnson Brunstad Amicus
Johnson Chamber of Commerce amicus
Johnson DBA intl amicus
Johnson NABT Amicus
Johnson NACBA Amicus SCt Dec 2016
Johnson NARCA amicus
Johnson NCLC etc amicus
Johnson Petition brief
Johnson petition reply
Johnson Reprinted brief of respondent
Johnson Resurgent Capital Amicus
Johnson US amicus

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Nice Win for Debtors on Means Test Expense Issue

Section 707(b)(2) permits a debtor to take the full National and Local Standard amounts for expenses even though the debtor’s actual expenses are less. Lynch v. Jackson, No. 16-1358 (4th Cir. Jan. 4, 2017).

When above-median debtors, Gabriel and Monte Jackson, filed for chapter 7 bankruptcy they complied with Form 22A’s instructions to list their expenses using the IRS National and Local Standard amounts rather than their actual expenses which were less. The bankruptcy administrator moved to dismiss their case as abusive under section 707(b)(2)(A)(i). The bankruptcy court denied the motion to dismiss. In re Jackson, 537 B.R. 238 (Bankr. E.D. N.C. 2015), and the Fourth Circuit accepted direct appeal.

The administrator argued that Form 22A’s instructions are erroneous and that the expense deduction amounts listed in the IRS Standards represent a cap on how high an expense amount may be claimed for certain expenses, but that if the actual amount is less, the debtor must use the lesser amount.

In Ransom v. FIA Card Servs., 562 U.S. 61 (2011), the Court addressed application of the IRS Standard expense deductions in the context of abuse under section 707(b). That Court held that, in order to take the IRS Standard expense deduction, a debtor must actually incur the type of expense designated, i.e. the “vehicle ownership” expense requires that the debtor have lease or loan payments on the vehicle. But that Court left open the question of whether, once the expense is found to be “applicable,” the debtor may take the full IRS Standard amount regardless of actual expenses.

The Fourth Circuit found the answer in the plain language of the statute: “[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards. 11 U.S.C. § 707(b)(2)(A)(ii)(I).” The fact that Congress used the word “actual” elsewhere in the same statute indicates that it made a distinction between applicable and actual. The court also recognized the absurdity of punishing a frugal debtor should the bankruptcy administrator’s interpretation of the statute be accepted.

As a procedural matter, the court held that the time to file a petition for direct appeal in section 158(d)(2)(A) is not a jurisdictional constraint and, therefore, the parties’ late filing did not deprive the court of jurisdiction over the appeal where other substantive factors favored direct appeal.

Congratulations to Lee Roland who represented the Jacksons, and to Erik Heath who authored NACBA’s amicus brief in support of the debtors.

Jackson 4th Cir. amended opinion Jan 2017

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POC for Time-Barred Debt May Violate FDCPA

The Bankruptcy Court for the Northern District of Illinois added to its body of law finding that a debt collector may violate the FDCPA by filing a proof of claim for a time-barred debt. Davenport v. Calvary Investments (In re Davenport), No. 14-30261, Adv. Pro. 15-559 (Bankr. N.D. Ill. Dec. 14, 2015). [Read more…] about POC for Time-Barred Debt May Violate FDCPA

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Debtors Denied Discharge for Failure to Make Mortgage Payments Outside Plan

Debtors whose Chapter 13 plan included a provision for curing mortgage arrears through the plan with regular mortgage payments paid outside the plan are not entitled to discharge when they fail to keep up with the mortgage payments. Kessler v. Wilson (In re Kessler), No. 15-40 (N.D. Tex. Nov. 19, 2015). [Read more…] about Debtors Denied Discharge for Failure to Make Mortgage Payments Outside Plan